Academic journal article The Journal of Law in Society

Evaluation of the "Expert Report of Martha E.M. Kopacz regarding the Feasibility of the City of Detroit Plan of Adjustment"

Academic journal article The Journal of Law in Society

Evaluation of the "Expert Report of Martha E.M. Kopacz regarding the Feasibility of the City of Detroit Plan of Adjustment"

Article excerpt

Wayne State University Law School

471 W. Palmer Avenue

DETROIT, MICHIGAN 48202

Peter J. Hammer

Professor of Law

Office: (313) 577-0830

phammer@wayne.edu

September 1, 2014

The Honorable Stephen W. Rhodes

United States Bankruptcy Court

Eastern District of Michigan

211 West Fort Street

Detroit, Michigan 48226

Dear Judge Rhodes:

In response to your Order Regarding the Solicitation of Applications to Serve as the Court's Expert Witness on the Issue of Feasibility (April 2, 2014), 1 submitted my name for consideration. You were generous enough to include me in the final list of candidates interviewed in open court.

In my application and interview, I raised a number of methodological concerns about the types of analyses and qualifications required to make a meaningful assessment of 1) the reasonableness of the assumptions that underlie the City's cash flow forecasts and projections and 2) the feasibility of the City's Plan of Adjustment (POA). (1)

I was particularly concerned that the "balance sheet framework" embedded in the City's Plan of Adjustment and within the professional expertise of municipal finance was inadequate to address the full range of questions at hand. "Creating a viable city requires much more than balancing revenue and expenses in a narrow accounting framework." (2) A broader, multidisciplinary set of expertise is required, including expertise in examining the City's interconnected social, economic and political systems.

I was further concerned, given the absence of any meaningful discussion in the City's Plan of Adjustment (3) and its Disclosure Statement, (4) that issues of race and regionalism would be marginalized in the expert analysis, particularly if experts were drawn exclusively from the field of municipal finance. "A feasible Plan of Adjustment based on reasonable forecasts and projections must be assessed in light of the City's history of still unhealed racial conflict and the City's position within a fractured and segregated regional economy." (5)

For example, the divisive history of racial conflict and subsequent urban neglect affects the political equation for future state revenue sharing and any discussion over possible regionalization of the Detroit Water and Sewage Department. Furthermore, the extreme segregation of race and wealth in the region has direct implications for any analysis of the labor and housing markets, which, in turn, directly affect future income and property tax revenue for the City. No defensible economic analysis can ignore these issues.

I have reviewed the City's Plan of Adjustment and Disclosure Statement. I have carefully evaluated the "Expert Report of Martha E.M. Kopacz Regarding the Feasibility of the City of Detroit Plan of Adjustment." (6) With all due respect to this Court's choice of experts and with equal respect for the intelligence, sincerity and industry clearly reflected in the Expert Report, I write to state my opinion regarding the issues of the reasonableness and feasibility of the City's Plan of Adjustment.

Regretfully, the fears motivating my original application have largely been realized. Methodological limitations in the Expert Report substantially undermine the integrity of the Report's conclusions. It is my opinion that a sufficient case has not yet been made in support of the City's Plan of Adjustment. Serious questions remain as to 1) the reasonableness of the assumptions underlying the City's cash flow forecasts and projections and 2) the feasibility of the City's Plan of Adjustment. Based on the current state of the record and expert analyses,

I do not believe that the Court can approve the City's Plan of Adjustment.

Part One of this letter examines the methodological issues needed to assess issues of reasonableness and feasibility. …

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